TMI Blog2010 (1) TMI 937X X X X Extracts X X X X X X X X Extracts X X X X ..... italized it is held that AO is directed to segregate the purchases from the aforesaid five parties made in this year in terms of capital expenditure and revenue expenditure 10% of the revenue expenditure will be disallowed on account of non-verifiability of The purchase price and similarly 10% of the expenditure on capital account shall be reduced from the cost of purchase of plant and machinery for the purpose of computation of depreciation - Decided partly in favor of assessee. Further, in view of admitted position that the assessee is unable to bring any independent evidence on record regarding purchases from 10 vendors, it cannot be said that lower authorities erred in taking into account the enquiries conducted by the central excise authorities. Dis-allowance of amount on account of late deposit of employees' contribution towards the provident fund and ESI - Held that:- Issue stands covered in favor of assessee in case of CIT vs. P.M. Electronics Ltd. Dis-allowance u/s 40(a)(ia) - Held that:- In view of amendment in Section 40 by Finance (No2) Act, 2004, w.e.f. 01.04.2005, AO is directed to allow the expenditure in the year of payment. However in so far as payment o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs.18,747/- on account of delay and Rs.3,066/ on account of late deposit of employees contribution towards PF and ESI contrary to the judgment of jurisdictional Delhi High Court on the issue. b) In sustaining disallowance of Rs.18,34,490/- made by the Assessing Officer u/s 40(ia) of the Income-tax Act, 1961. 8. That the learned CIT(A) has grossly erred in not allowing depreciation of Rs.5,96,27,011/- against the income assessed by the assessing Officer. 9. That the appellant craves-leave to add, alter or delete the above grounds of appeal at the time of hearing. In the course of hearing before us, the ld counsel explained that the effective grounds are only ground nos. 1 and 7, that the order of the ld. CIT(Appeals) is arbitrary, biased and he erred on facts and in law in sustaining the additions made by the AO by rejecting the books of account. The disallowances on account of late deposit of employees' contribution to PF and FSIC and non-deduction of tax at source on certain payments have also been challenged in these grounds. 2. On perusal of the assessment order, it is found that the return of income declaring total income of Rs.1,08,85,190/- was filed on 31. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 and 7 of the order in a tabular form', which is reproduced below in so far as its contents for our purposes are concerned:- S. No. Party Address Persons concerned Duty evasion prior to No., 2002 Excise evasion Amount w.e.f. Nov., 2002 1. S.S. Enterprises Palika Bazar, GT Road, Ghaziabad Sunil Gupta (Shakuntala) 27.15.304 76,32,042 2. S M Enterprises Palika Bazar, GT Road, Ghaziabad Sunil Gupta (Shakuntala) ---- 41,61,404 3. A.S.Steel 11B, Gali No.1, Banwari Nagar, Sihani Rd., Ghaziabad Sunil Kumar Gupta (Prop) 23,57,312 30,55,664 4. Shiva Udyog 143, Loha Mandi, B.S.Road Indl. Area, Ghaziabad. Sunil Kumar Gupta (Prop) ---- 6,70,127 5. Global Enterprises Sihani Meerut Road, Ghaziabad Kavit Bansal ---- 28,56,544 6. Best International Krishna Nagar, Sihani Road, Ghaziabad S.K. Verma ---- 17,74,095 7. G.S. Machines and Engg. Works G-45, Udyog Kunj Bulandshahr Road, Indl. Area, Ghazi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Shri Krishna Machine and Tools, Gali No. 2, Krishna Nagar, Meerut Road, Ghaziabad. Unserved 3. Ajanta Enterprises, Netaji Nagar, Delhi Road, Modi Nagar, Uttar Pradesh. No Reply 4. Ratan Jyoti Mercantile, Netaji Subhash Nagar, II Lane, Near Dharam Kanta, Modinagar, Uttar Pradesh. No Reply 5. SS Enterprises, Palika Bazar, GT Road, Ghaziabad, U.P. No Reply 6. Air Ship Logistics, D-305, 2nd floor, Tagore Garden Extn., New Delhi-27. Unserved 7. Micro Electronics and Spares, A-742, Shatri Nagar, New Delhi. Unserved 8. Paras Spares and Accessories Ltd., 2A, Gautam Nagar, New Delhi. Unserved 9. Shiv Textiles, S-27, DLF Indl. Area, Phase-I, Faridabad. Unserved 10. Triveni Electroplast Pvt. Ltd., MIG-17, Mumford Ganj House, Allahabad. Unserved 11. Versa Exports Pvt. Ltd., RZ-88, Manas Kunj, Uttam Nagar, New Delhi. Unserved 12. Digamber Vyapar Pvt. Ltd., B-48A, Ganesh Nagar, Patparganj Rd., Delhi. No reply 13. East West Automation Technologies Pvt. Ltd., 45, Hart ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ices were issued by the vendors. The goods were received in the vehicles mentioned in the invoices. However, the assessee did not confirm the registration number of vehicles mentioned in the invoices. It was also submitted that the book results of this year were comparable with the book results of earlier years for which the analysis of various financial ratios for three years was submitted in a tabular form, which is reproduced as under:- F.Y. 04-05 03-04 02-03 Sales 16409.10 9736.80 5828.65 Increase in stock 577.13 541.10 52.79 DEPB and intt, 185.10 51.66 17.58 17171.13 10329.56 5899.3 Manufacturing/Trading Expenses 15275.37 9091.71 5021.21 Gross profit 1895.76 1237.85 877.92 GP Ratio 11.04% 11.98% 14.88% Manufacturing/trading Expenses Ration 88.96% 88.02% 85.12% 2.5 The explanation was also furnished in respect of six vendors, in respect of which the ward inspector had reported that they were nonexistent. The submissions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gement of its income-tax return and the bank statement in response to notice u/s.133(6). In regard to M/s Jai Bharat Commercial Corporation, it was informed that it was a proprietary concern of Shri B.L. Dengla and it was registered with Sales-tax Department since January, 2005. The sales-tax registration number was also furnished. Various documents show that its address was D-88, S. Ganesh Nagar, New Delhi. The concern was not operating due to sealing drive by the MCD and it was functioning from the residential address, which was communicated in response to notice u/s 133(6). This vendor had also filed the copy of its income-tax return in response to the notice. Similarly in the case of Paras Spares and Accessories Ltd., it was informed that it was a limited company, registered under the Companies Act, 1956, having registered office at 253-A/6, Shahpur Jat, Delhi. Its sales-tax registration number was also communicated to the AO. The sign board of the company was displayed in front of the office. This supplier had also furnished copies of ledger account, acknowfedgement of income-tax return and bank statement in response to notice u/s 133(6) of the Act. 2.6 The assessee also s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... number of parties enquired into was 30. Therefore, the profit was estimated @ 10% of the total sales after giving reference to various financial ratios of this and earlier two years, which are in the nature of re-working of the financial results submitted By the assessee. Some other additions in regard to delayed payment towards provident fund and ESI and non deduction of tax etc. were also made. Finally, the income of the assessee was computed as under:- " Net income @ 10% of turnover as discussed. 16,40,91,000/- Add: i) other income as discussed 1,85,10,000/- ii) Disallowance on account of delay in payment of PF and ESI as discussed in para 7.1 63,627 iii) Disallowance u/s 40(ia), as discussed in para 7.2 18,34,490/- Total taxable income 18,44,99,117/- 3. Aggrieved by this order, the assessee filed an appeal before the CIT(A)-XXI, New Delhi. The ld. CIT(A) noted that the main allegations in the assessment order were as under:- (a) Search operation by Central Excise Authorities followed by show cause notice by the Commissioner of Customs and Central Excise Noida vide C. No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lying would not have been possible if the assessee had been receiving only documents from the suppliers and not the corresponding goods. It was also observed that there was no evidence on record to show that there was any excess receipt of inputs in the factory, which was used for manufacturing finished goods, the reason being that all the manufactured goods had been cleared on payment of appropriate duty. The case of the ld. counsel, on the basis of these findings of the Settlement Commission, was that in so far as 19 vendors investigated by the Central Excise Department are concerned, no conclusion could be drawn that goods were not received or that the goods were not used in manufacturing of the finished goods. 3.2 In regard to the enquiries conducted by the AO from 16 parties u/s 133 (6), it was submitted that 8 parties had directly sent the relevant information to the AO. The assessee had also furnished information in respect of two parties vide letter dated 24.12.2007 before the completion of the assessment. The information in respect of rest of the parties was furnished vide letter dated 26.12.2007. Thus out of 16 parties, details and particulars in respect of 15 parties ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (para 13.9 of Settlement Commission's order). 6. The Commission took note of the fact of flow back of money to the assessee in para 13.11 of Settlement Commission's order." 3.7 The finding of the ld. CIT(A) in regard to rejection of books of account was that the actual investigation, statement of employees and investigation into transport of goods lead to the conclusion that the vendors were either non existent or they existed only on paper. The Settlement Commission's mention that the money flowed back to the assessee company was also relevant. The appellant had accepted huge excise duty liability of Rs.3,66,73,077/- in respect of the vendors from whom it was alleged that he was getting bills only and not the goods. Therefore, it was held that the AO rightly rejected the books of account. The alternate prayer of the assessee before him was that the estimation of net profit @ 10% of the sales was unreasonable and excessive. In this connection, it was mentioned that the AO had not added back the bogus purchases quantified by him. He had taken the profit at 10% of the turnover. Looking to the facts available before film, this action of the AO was also upheld. The AO had made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s held that the books of account could not be relied upon. Therefore, the books were rejected u/s 145(3) of the Act. In paragraphs 6.13, 614 and 6.15, it was mentioned that the accounts of the vendors were examined and it was found that huge purchases were shown from apparently persons of small means. The enquiries conducted by the Excise Department also showed that purchases debited in the books in respect of 19 parties were bogus. It was further mentioned that the purchases were made on credit basis while the capacity of the aforesaid 19 vendors to extend credit was not established. Therefore, it was held that purchases of Rs.9,93,40,4837/-, debited in the books in the names of the 19 non-existent vendors, were not genuine. However, no separate addition was made to the total income on this ground. Since the AO had made independent enquiries into purchases from 16 vendors, he was of the view that the books of account were not reliable and deserved to be rejected u/s 145(3). After rejecting the books of account, the net profit was estimated at 10% of the turnover of the assessee Certain other additions were also made, which shall be discussed separately. The case of the ld. counsel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xcess inputs received in the factory were used in the process of manufacture of goods which were cleared without payment of duty. Thus, the finding of the Settlement Commission was that the statutory records were maintained properly by the assessee in regard to input and output. In paragraph 13.9, it is mentioned that the assessee had not maintained any system of maintaining the gate register till early 2004. Such a register was maintained only after 2004. The investigation conducted by the Commissionerate covered the period from February, 2001 to December, 2005 and transactions with many of the suppliers covered period prior to 2004. Thus, the non-maintenance of gate register in some cases cannot form the basis of the conclusion that there was no physical receipt of goods. This view is strengthened by the fact that no excess or shortage was found on stock taking. In paragraph 13.10, it is mentioned that if goods had not been supplied by 10 vendors, the question arises as to where the goods have gone? If it is presumed that the inputs received from the suppliers have been diverted, and the duty paid inputs have been purchased from the market by the assessee there seems to be no mot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t purchases had been made from these parties also. Therefore, it was agitated that no addition could have been made to the book results declared by the assessee. The ld. CIT(A) also did not take into account the findings of the Settlement Commission and confirmed the order of the AO. 4.3 Corning to the legal arguments, it was submitted that the books of account were in possession of the Excise authorities and obviously in such a situation, those could not have been produced before the AO. The return of income had been filed before the search and it was accompanied by, requisite audit report. Therefore, the books could not have been rejected on the ground that only ledger print outs were filed in the course of assessment proceedings. 4.4 It was further submitted that the additions were made by the AO and sustained by the ld. CIT(Appeals) merely on suspicion that bogus purchases have been entered in the books of account. No addition can be made merely on suspicion. The addition can be made only when it is shown by bringing evidence on record that the books of account were not reliable as material errors and omissions existed therein. In order to support this proposition, reli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s no transfer of money between him and Ravi Talwar and Madhu Talwar. Ravi-Talwar and Madhu Talwar had also denied the receipt of any money from the assessed. In the face of this denial, there ought to have been corroborative evidence to show that there was in fact such a transfer of money. The CIT(Appeals) and the Tribunal came to the conclusion that there was no such material on record. The AO had relied on some other transactions for deriving a presumption in respect of transfer of money, but the Tribunal rightly held that those were independent transactions and had nothing to do with the MOU. On the basis of the aforesaid, it was held that no substantial question of law arose. The case of the ld. counsel was that there should be some tangible material on record to show that the purchases were not made and in absence thereof, the purchases shown by the assessee in the accounts could not have been held to be bogus. Reliance was also placed on the decision of Hon'ble Madras High Court in the case of CIT vs. Vignesh Kumar Jewellers (2009) 222 CTR 78, in which it was mentioned that merely because some quantity of jewellery manufactured out of imported gold meant for the purpose of ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equires correction from us. Thus, this ground is dismissed." 4.6 He also relied on the order of 'A' Bench of Jaipur Tribunal in the case of Shubh Laxmi Exports vs. ITO (2008) 10 DTR 281. In that case, the assessee had exported jewellery and such exports were supported by furnishing export invoices, export airways bill, bill of custom house agent, proof of charges by the Rajasthan Small Industries Corporation Ltd., proof of export realization in the bank, shipment airways bill, copy of application and annexures of REP licence and copy of application and annexures for allotment of code number for the exports and membership of the Gem and Jewellery Export Promotion Council. None of these documents was disproved by the AO. However, he doubted the physical delivery of goods and accordingly made addition of the amount of purchases u/s 69C. The Tribunal held that it is not always possible for the purchaser to produce the suppliers before the AO to establish genuineness of the purchases. In such circumstances, what is expected from a prudent purchaser is to establish the purchases by furnishing purchase bills, proof of payment through banking channel, books of account etc. In the face ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... application does not ipso-facto leads to stay of the I.T. proceedings. The assessee admitted huge liability of about Rs.3.68 crore under the Excise Act, which speaks itself about the genuineness of the purchases. Since such purchases were debited in the books of earlier years also, the profit could not be estimated by resorting to the past results. The enquiries conducted through Ward Inspector also showed that some other parties, from whom goods were stated to have been purchased, were bogus. Thereafter, the findings furnished by the AO in respect of six parties, M/s Micro Electronics and Spares, M/s Digamber Vyapar Ltd., M/s Mahalaxmi Vinimay, M/s Jai Bharat Commercial Corporation and M/s Paras Spares and Accessories Ltd. were mentioned. Attention was also invited towards paragraph 30 of the show cause notice of the Central Excise Department in regard to flow back of money to the assessee. It was mentioned that most of the suppliers had maintained the bank account with Bank of Rajasthan,82, Janpath, New Delhi in most of the cases, cash was withdrawn by Shri Ravinder Kumar Sharma; Director of Paras Spares and Accessores, and in some cases, the amount was transferred to the accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccounts were mainly controlled by the employees, their relatives or the relatives of the directors. 5.3 The ld. DR also submitted book results in respect of 15 companies sourced from data base "prowess" for the year ending 2005. In these cases, the ratio of profit before tax to the sales varied between 3.55% to 34.15%, with the average of 16.02%. It was argued that the AO has taken the net profit at 10% of the sales, which was reasonable looking to the aforesaid data. 5.4 In order to support the aforesaid contentions, reliance was placed on the decision of Hon'ble Supreme Court in the case of S.N. Namasivayam Chettiar vs. CIT (1960) 38 ITR 579, in which it was held that it was for the income-tax authorities to consider the material which is placed before them and if after taking into account the material including absence of stock register they are of the opinion that correct profits cannot; be deducted, then, they would be justified in applying the proviso to section 13 of the 1922 Act. In that case five material deficiencies were found while examining the books, namely, that (a) vouchers for several purchases made in Colombo were not produced, (b) there was no quantitativ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Calcutta High Court in the case of Steel Containers Ltd. vs. CIT (1978) 112 ITR 995 where the Tribunal had granted relief to the assessee on a different ground and, thus, the case of the ld. DR was similar to the case as made out on the basis of the decision in the ease of Marolia and Sons (supra). Reliance was also placed on the decision of Hon'ble Supreme Court in the case of Commissioner of Central Excise vs. Systems and Components (P) Ltd. 2004 (165) ELT 136, in which it was held that since it was an admitted position that the components were used in Chilling Plant, there was no justification for the Tribunal to hold that this by itself was not sufficient to show that they were specifically designed for the purpose of assembling the Chilling Plant. The matter was restored to the file of the Tribunal for deciding the issue on merits by holding that it is a basic and settled law that what is admitted need not be proved. The case of the ld. PR was that the assessee admitted the liability before the Settlement Commission, which was not disputed before the Tribunal. Therefore, nothing further remained to be proved by the revenue in the matter of bogus purchases. Reliance was also p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utta, who was not found to be existing on the given address. Therefore, summons were issued to its banker and if was informed that the account was opened with four pay orders and the address was 479, Bartan Market, Sadar Bazar, Delhi. The name of the person who was operating the account was Chhedi Lal. One of the partners of the assessee firm had introduced this account. It was held that on the facts, the whole of the amount involved in the purchases was to be disallowed. Reliance was also placed on the decision of Hon'ble Calcutta High Court in the case of CIT vs. Soorajmal Nagarmull (1990) 181 ITR 340, in which it was held that there is a prima facie presumption that those who were found in possession of the jewellery were the owners thereof unless that presumption is rebutted by cogent evidence which in fact, was not there. Therefore, the Tribunal was justified in coming to the conclusion that the value of jewellery could not be taxed in the hands of the assessee firm. 6. In the rejoinder, the ld. counsel objected to the data now placed before the Tribunal and obtained from data-base "prowess". It was argued that the detailed accounts of these companies were not brought on r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Shiva Udyog GB-5354425 AAJFS5803J L/C issued by bank in favour of party. 4. Hindustan Electronics GB-0436017 ADIPK0140N L/C issued by bank in favour of party. 5. Shri Krishna Machine and Tools N.A. N.A. L/C issued by bank in favour of party. 6. S.M. Enterprises GD-0286532 ACQPD7442M L/C issued by bank in favour of party. 7. M.K. Tools UPGD-0052671 AQJPS3292F L/C issued by bank in favour of party. 8. Global Enterprises UPTTN GD-0424602 AADFG3711F L/C issued by bank in favour of party. 9. Best International GB-496350 AKMPK7081R L/C issued by bank in favour of party. It was also submitted that out of the aforesaid 9 vendors, purchases were made in this year only from four such vendors with the following details:- S. No. Name and Address of the Party Whether inquiry u/s 133(6) made Amount of purchases during A.Y. 2005-06 Amount of excise duty on purchases Rs. Rs. 1. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erns ran by relatives of the employees and directors. The allegation in the show cause notice was that the bogus purchases were introduced for obtaining cenvat credit. These facts were brought to the notice of the assessee in the course of assessment proceedings. 8.1 Apart from the above, the AO also made enquiries in respect of purchases from 16 parties, out of which 5 parties were common with the parties mentioned by the Excise authorities in the show cause notice. The ward inspector was also directed to trace the aforesaid parties. He made enquiries in respect of six parties and reported that they were non-existent. 8.2 The assessee was not in a position to produce any evidence except purchase bills, ledger account and its own bank account to show the payments in respect of 9 parties. Out of these parties, the assessee had made purchases from four parties in this year. The AO made assessment on the basis of the aforesaid enquiries in which the books of account were rejected by referring to the results of aforesaid enquiries and the fact that the assessee was not in a position to produce the books of account. The net profit was estimated at 10% of the turnover of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e shown is that the business of the assessee was more or less the same as business of those parties. It has to be further shown that they were situated in similar circumstances and, thus, their operations led to more or less same kind of results. This has not been established by the revenue. Moreover, no specific application has been filed for admission of the evidence so that objections of the assessee could be obtained at the admission of the evidence. In view of these factors, the evidence in respect of comparable cases is not taken on record. 8.6 It was also one of the grounds of the revenue that books of account were not produced in the course of assessment proceedings or appellate proceedings. The case of the assessee is that the books were seized by the central Excise Department and it had only copies of computerized ledger accounts of the parties with it. These accounts were produced in the course of hearing. The return was filed on the basis of books of account and it was accompanied by the audit report. In such circumstances, the book results ought to have been accepted or in the alternative the revenue could obtain the books of account from the central Excise authori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the appellate authority. The AO did not make any independent enquiry and there was no corroborative evidence to support the case of the revenue. The assessee was not given an Opportunity to cross-examine them. On these and other facts, it was held that the lower authorities were right in deleting the additions. The facts of this case are distinguishable from the facts of that case. In this case, the AO has made independent enquiries apart from relying on the allegations made in the show cause notice of the excise authorities. The matter went up to the Settlement Commission and it was inter-alia found that the assessee claimed cenvat credit in respect of purchases and it could not be established that the vendors had paid the excise duty. The assessee admitted such claim in respect of 9 vendors and the Settlement Commission found one more vendor who had not supplied the goods to the assessee as it was manufacturing goods different from the goods shown in the purchase bill. Thus, the findings of the central Excise authorities have not been completely displaced in appellate or settlement proceedings. The AO furnished opportunity of being heard to the assessee in respect of all the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsideration as in the first place these were only allegations, and in the second place many of them were proved to he wrong or not established before the Settlement Commission. In other words, the order of the Settlement Commission can be said to be the right basis for settling facts as no evidence was brought on record by either party to displace such findings. 9. After taking into account the discussion in various sub-paragraphs of paragraph 7, what remains to be considered by us is stated hereinbelow. The facts of the case are that,- (i) The enquiries showed that the assessee was not able to prove purchases from 10 vendors by bringing on record any evidence from them. Nine vendors were found to be non-existent and one vendor stated that the goods shown in the bills were not manufactured at all by it as it was manufacturing totally different goods; (ii) There was a complete stock tally on 14.1.2006, which leads to a clear inference that even though some vendors may not be in existence and some may be existing for short period, the goods mentioned in their bills were actually used in the process of manufacture of the final products, which were cleared on payment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct profits cannot be deducted, then, they will be justified in rejecting the books of account. As mentioned in paragraph 5.4 (supra), a number of adverse factors were found in that case and one of them was that stock register was not maintained. Therefore, the action of rejection of books of account was upheld. In this case the only objective factor is that bills from 10 vendors are not amenable for cross verification although corresponding goods have been used in the process of manufacturing the final-products. Therefore, the facts are distinguishable. In the case of Jagjit Singh and Sons (supra), the assessee was not able to co-relate sales with purchases and there was no evidence to support the value of closing stock. Variation was found in stock in the course of survey in the subsequent year and the gross profit ratio was also lower in this year. All these factors are not there except non-verifiability of the bills from 10 vendors. In the case of Kabir Leather (supra), the only issue was regarding non-verification of wastage and only this limited matter was restored; to the file of the AO. Thus, we are of the view that these cases do not advance the case of the revenue for comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uestion before the Tribunal was not whether the purchases were made from another concern, but the question was whether the purchases were made from Kalpana Enterprises? The evidence on record suggested that purchases were not made from Kalpana Enterprises. The facts on record established that the assessee knew that the whole thing was a fictitious arrangement Therefore, it was held that the question whether purchases were made from some other source ought not to have weighed with the Tribunal as a factor in favour of the assessee. The argument of the ld. counsel was that this case had been considered in the case of Eland International (P) Ltd. (supra). In that case, there were transactions of purchase and sale which resulted in profit. It was mentioned that sales were effected only out of purchases and if the purchases were to be held to be bogus, similar finding will have to be given in respect of sales. The facts were distinguished by mentioning that the purchase consideration was deposited in the account of the employee of La Medica, which was opened with the introduction of the assessee. Coming to this case, there is a clear finding of the Settlement Commission which has also b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were not made on revenue account and some of the expenditure was capitalized. In respect of the four vendors, from whom purchases were made amounting to Rs.303.68 crore, the purchases on capital account, capitalized as fixed assets in the block of plant and machinery, was stated to be Rs.1,44,42,100/-. The balance purchases were in respect of raw-material. The position in the cass of Ashish Alloys and Castings (P) Ltd. is not known to us. In view thereof, the AO is directed to segregate the purchases from the aforesaid five parties made in this year in terms of capital expenditure and revenue expenditure 10% of the revenue expenditure will be disallowed on account of non-verifiability of The purchase price and similarly 10% of the expenditure on capital account shall be reduced from the cost of purchase of plant and machinery for the purpose of computation of depreciation. The result of this discussion is that ground no. 1 is partly allowed. 10. Ground no. 7(a) is against disallowance of Rs.18,747/ and Rs.3,066/- on account of late deposit of employees' contribution towards the provident fund and ESI. It was the common case of both the parties that the issue now stands covered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rent and royalty were also so added by Taxation Laws (Amendment Act), 2006, retrospectively with effect from 4.4.2006. It was also provided that where the tax has been deducted in any subsequent year, such sum shall be allowed as deduction in computing the income of the previous year in which tax has been paid. From the aforesaid table, it is clear that the tax from payments on contract, interest, professional fees and commission are covered by the aforesaid provision for this year, on which tax was required to be deduction and paid before the due date for claiming deduction in this year. However, all the payments were made after the due date and in the financial year 2005-06. Therefore, we are of the view that the order of the ld. CIT(A) does not require any interference in respect of the aforesaid expenditure except stating that the corresponding amount is deductible in computing the income for assessment year 2006-07. In so far as payment of rent is concerned, the provision is not applicable for this year as the amendment in this behalf came into force w.e.f. 01.04.2006, i.e., assessment year 2006-07 and subsequent years. Therefore, the assessee was entitled to deduct the rental ..... X X X X Extracts X X X X X X X X Extracts X X X X
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